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Free Lawsuit Defense?

Frequently, businesses receive threatening letters from their competitors’ attorneys alleging patent, trademark or copyright infringement, domain name infringement, cybersquatting, cyberpiracy, trade secret misappropriation, false advertising or unfair competition. Rather than agreeing to cease and desist the allegedly infringing activities, regardless of the merits of their competitors’ claims, simply to avoid being unable to afford the costly litigation process, you may have free defense through an insurance policy. A current or expired insurance policy may obligate an insurance company to defend and indemnify you in lawsuits involving intellectual property rights.

Even when insurance brokers, insurance agents and insurance companies sometimes tell you that your policies do not provide infringement defense coverage, sometimes coverage does exist. Insurance companies may even reject the tender of the case and deny coverage in cases when coverage exists. Worse yet, attorneys without experience in these matters sometimes accept the insurance company’s rejection of the tender and denial of coverage and advise businesses that coverage does not exist. As a result, businesses faced with a cease and desist demand or a lawsuit involving intellectual property rights should have their case reviewed by attorneys familiar with intellectual property and insurance coverage law.

Typical Commercial General Liability (CGL) policies contain “advertising injury” provisions which may trigger coverage in lawsuits involving intellectual property. To be covered, the alleged infringements must have occurred in the course of advertising activities. However, even if the policy contains the “advertising injury” language, coverage issues may arise.

For example, the typical complaint for infringement of intellectual property rights includes additional counts for intentional or willful infringement. Most CGL policies contain language expressly excluding intentional acts. Fortunately, intentional acts in the context of malice or specific intent, which are not covered, may be distinguished from willfulness in the context of infringement, which may be covered. If the carrier chooses to defend under a reservation of rights with respect to the intentional or willful counts, a conflict of interest is created and the insured may have the right to select independent defense counsel. In such situations, the carrier may also be responsible for payment of the independent defense counsel’s fees because its duty to defend is broader than its duty to indemnify.

 

Personal, business or umbrella policies may also provide coverage for defamation, libel, slander or disparagement.

However, it may not always be in a company’s best interest to trigger insurance coverage. This decision should be made by counsel familiar with the merits of the intellectual property claims, as well as the insurance coverage issues.

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